1. How to Finance Affordable Housing with Low Income Housing Tax Credits July 10, 2007

2. Outline Overview  Industry Statistics (Estimates)  What Are Low-Income Tax Credits(LIHC)  Administrative Roles of the States  How Credits Are Awarded to LIHC Project How Are LIHC Projects Funded? What Are The Compliance Requirements? Who Invests In LIHC Projects?  What Does The Developer Give To The Investor?  What Does The Developer Keep?  How Is A Tax Credit Transaction Structured?

3. What Are Low Income Housing Tax Credits? Tax Credits Are Used To Reduce Federal Income Tax  Individuals  Corporations Federal Government Allocates Credits To Each State Annually  $1.95 Multiplied By State Population (2007)  State Credit Ceiling

4. What Are Low-Income Housing Tax Credits? Available For Rental Housing Only Tax Credits Are Claimed By Investors Over A 10 Year “Credit Period” 15 Year “Compliance Period” - Project Must Be Rented To Low-Income Tenants Extended Use Requirements - 30 Years+ EB x LIOP x CP x 10 = Credits *EB = Eligible Basis, LIOP = Low Income Occ. % & CP = Current %

5. Administrative Roles Of The States Responsible For Reserving and Allocating Tax Credits  Determine Competitive Process  (Beauty contest)  Assess Financial Feasibility  Monitor Development Process Compliance Monitoring *Varies by State IRS = Minimum of 1 twice every 3 years

6. How Are Credits Awarded? State Housing Agencies Responsible For Administering The Program LIHC Allocations Made In Accordance With A Qualified Allocation Plan (QAP) QAP Documents Local Affordable Housing Need “Beauty Contest” Determines Which Projects Will Be Awarded LIHC Application Cycles Vary From State To State Program Oversubscribed In Almost Every State

7. How Are LIHC Projects Funded? Equity Sources  Public Funds  Private Funds  Corporations  30-65% Of Project Funded From Equity

8. How Are LIHC Projects Funded Balance Of Cost Funded From Debt  For-Profit Lenders  Federal, State And Local Programs  HOME Funds  Community Development Block Grants  Affordable housing Program  Other State And Local Programs

9. What Are The Compliance Requirements? Tax Credits Available For “Low-Income Units” Only Restrictions On Low-Income Units  Income Restrictions  Rent Restrictions

10. What Are The Compliance Requirements? Income Limitations  Percentage of Area Median Gross Income - HUD Limits  Income Limits Adjusted For Family Size- Actual Number of People Living In The Unit  Deeper Restrictions Often Imposed By States Elections  40/60 Set Aside  20/50 Set Aside

11. What Are The Compliance Requirements? Rent Limitations  Maximum Rents Generally Equal To 30% Or Less Of Imputed Income Limits  1.5 Persons Per Bedroom - Bond = 1 per bd.  2 Bedrooms Is Deemed To Have Three People For Rent Restriction  Area Median Gross Income Figures From HUD Are Based On A Four Person Family

12. Who Invests In LIHC Projects? Types Of Investors - Tax Law Governs  Corporate Investors  Individual Investors Total Annual Equity Investment - Over $2.5 Billion

13. What Does The Developer Give To The Investor? Generally 99 to 99.99% Of The Partnership  Tax Credits  Losses Generally 50 to 99.99% Of The Partnership  Available Cash  Residual Value Of Property  Capital Account Maintenance Rules Apply

14. What Does The Developer Give To The Investor? Tax Credit Guarantees  Construction Completion & Deficit  Lease-up  Permanent Loan Funding  Tax Credits (Adjusters)  Tax Losses  Yield Maintenance  Compliance Monitoring

15. What Does The Developer Retain? Developer Fees Contractor Overhead And Profit Property Management Fees Incentive Management Fees Operating Cash Flow Sale Or Refinancing Proceeds

16. Tax Credit Example 9,000,000Project Costs 1,000,000Developer Fee(7,000,000*15%) 10,000,000Project Costs (1,000,000)Non-eligible Project Costs (1,000,000)Land 8,000,000Eligible Basis *1.3Difficult To Develop Area 10,400,000Qualified Basis

17. Tax Credit Example 10,400,000Qualified Basis *100%Low Income Occupancy% 10,400,000Qualified Basis *9%Credit Percentage 936,000Credits Per Year *10Years 9,360,000 Total Credits *.95 Credit Price 8,892,000Equity

18. Tax Credit Example 150Rental Units *400Per Unit 60,000Per Month Rental Income (30,000)Operating Expense (50%) 30,000Net Operating Income Per Month *12Months 360,000Net Operating Income /1.15Debt Coverage Ratio 313,043Cash Available 3,240,000Loan

19. Tax Credit Example 10,000,000Project Costs (6,575,400)Equity ( 3,240,000)Permanent Loan 184,600Unfunded Project Costs ( 184,600)Deferred Developer Costs 0

20. What Do Best Properties Have in Common? Great real estate  Rents under market  Very strong market demand (no occupancy risk) Very little “hard” debt  Developer job -- meet community needs  Community job -- support w/financing  TIF, Home loans, soft seconds, etc.